In this comparative report, we look at the differences between doing business in Singapore and Malaysia.
This report refers to data from World Bank’s 2014 ‘Ease of Doing Business’ report and World Economic Forum’s Global Competitiveness 2013 – 2014 as well as 2014 Global Enabling Trade reports. It measures five indicators, namely company incorporation, corporate tax rate, foreign investment friendliness, intellectual property protection and workforce.
Malaysia has made significant economic progress and is now hot on the heels of its neighbour Singapore. The Doing Business report ranked it as the 6th easiest place to do business and the country has made stellar progress, especially in the areas of dealing with construction permits, getting electricity, getting credit and starting a business.
Furthermore, Iskandar Malaysia, just north of Singapore, is set to provide a hinterland for Singapore-based businesses. According to a news report on Today titled ‘S’pore, M’sia trade grows on Iskandar activities,’ Singapore businesses are encouraged to explore Iskandar as a place to expand their operations. Singapore is a major investor in the zone, having injected US$24 billion into projects there.
However, the GCI has cited inefficient government bureaucracy, corruption and poor work ethic in national labour force as the most problematic factors for doing business in Malaysia.
In general, Iskandar looks promising but Singapore is currently well-positioned to function as the shop front or headquarter for businesses in Asia.
|World Bank’s Doing Business (DB) 2014
Singapore vs. Malaysia
|Starting a business||3||16|
|Dealing with construction permits||3||43|
|Trading across borders||1||5|
The Doing Business report ranked Singapore 3rd worldwide in the category of starting a business. This was due to the procedures, timeframe and paid-up capital required to complete the business registration. Malaysia was ranked 16th, which is an improvement by 3 positions from its 2013 rank.
In both countries, 3 procedures are required to start a business. However, the process takes 2.5 days in Singapore and 6 days in Malaysia.
Malaysia has made significant improvements in terms of dealing with construction permits as well, jumping from 99th position in 2013 to 43rd in the Doing Business 2014 report. However, getting a construction permit is still faster in Singapore. According to the Doing Business report, it takes only 26 days and 11 procedures to build a warehouse in Singapore. A company has to undergo 15 procedures over 130 days in Malaysia to do the same.
The Doing Business report has ranked Malaysia 36th in the category of paying taxes. This represents a significant decline from its 15th position in the 2013 report. Singapore maintained its 5th position for its tax rates and tax filing procedures.
Both Singapore and Malaysia have attractive corporate tax rates. In Singapore, the marginal corporate tax rate is 17%, while in Malaysia, it is 25%. Both countries offer special tax rates for resident companies. In Malaysia, eligible resident companies enjoy a 20% corporate tax rate on the first MYR 500,000 during their first year of assessment (YA). In Singapore, eligible newly incorporated companies can claim full tax exemption on the first S$100,000 of chargeable income over the first 3 consecutive YAs.
In addition, companies make 13 tax payments a year and spend 133 hours a year filing, preparing and paying taxes in Malaysia. In contrast, Singapore companies make five tax payments a year and spend 82 hours a year filing, preparing and paying taxes.
For more details on tax rates in Singapore, please visit our page on Singapore taxation.
Foreign investment friendliness
In order to attract investments, a country should first have regulations to protect investors. In the Doing Business report, the Strength of Investor Protection Index measures the transparency of transactions, the shareholders’ ability to sue officers and directors for misconduct and liability for self-dealing. Singapore scored 9.3 out of 10 while Malaysia scored 8.7. This places Singapore in the 2nd position worldwide and Malaysia at a close 4th in the category of protecting investors.
In addition, Singapore’s greater emphasis on compliance as well as transparency will continue to ensure wealth protection for genuine investors. The ongoing efforts to improve financial reporting standards, fight wilful tax evasion and financial crimes, as well as to comply with international standards FATCA and BASEL III will also help to attract more bonafide foreign investments.
Intellectual property protection
Intellectual property protection is another factor that motivates investors to inject capital into companies and is crucial in an innovation and knowledge-based economy. The Political & Economic Risk Consultancy Report 2011 and the International Property Rights Index 2012 have formerly ranked Singapore as the top jurisdiction in Asia for intellectual property (IP) protection. According to the Global Competitiveness Report, Singapore is the second best in the world and first in Asia for IP protection. The GCR ranked Malaysia at 30th position.
|WEF’s Global Competitiveness Index 2013 – 2014
Singapore vs. Malaysia
|Basic Requirements (60%)||1||27|
|Health and primary education||2||33|
|Efficiency Enhancers (35%)||2||25|
|Higher education and training||2||46|
|Goods market efficiency||1||10|
|Labor market efficiency||1||25|
|Financial market development||2||6|
|Innovation and sophistication factors (5%)||13||23|
Malaysia has made great improvements in terms of labour market efficiency. According to the GCR, Malaysia has improved its score in 6 out of 10 indicators, and scored well in 8 indicators. As a result, it was ranked 25th worldwide in this category.
Nevertheless, Singapore scored very well in 9 out of 10 indicators, earning it the top position for ‘Labour Market Efficiency’. Both countries did not score well for women’s participation in the labour force. Singapore ranked 84th in this category, while Malaysia ranked 121st.
In a Nutshell
The above analysis confirms that although Malaysia enjoys close proximity to Singapore, it is still plagued by inefficient government bureaucracy, corruption and poor work ethic in national labour force. Furthermore, Iskandar region in Malaysia, just north of Singapore, is set to provide a hinterland for Singapore-based businesses adding to the city-state’s attractiveness. Additionally, better tax laws, more options for incorporating entities, robust IP protection and a business-friendly environment in general, gives the city-state an edge over its bigger neighbour.